When legal fees outpace the recovery to the client, it can give rise to serious implications from New Jersey's Rules of Professional Conduct (RPCs). New Jersey's Disciplinary Review Board (DRB) has found multiple RPC violations in such situations, including RPCs 1.4 (Communication); 1.5 (Fees); and 8.4 (Misconduct). These situations almost always stem from insufficient communication, including lack of: oral or written fee agreement; discussion regarding expected recovery; regular invoicing; and explanation of how settlement proceeds will be allocated. These situations clearly cross into ethical violations when attorneys, on notice of a dispute over funds, nonetheless withdraw the funds to satisfy their legal fees. Violations can result in a range of consequences, from admonition to disbarment; as well as disgorgement of all fees, imposition of disciplinary hearing costs, and supplemental continuing education requirements. As illustrated by the following DRB decisions, sufficient communication is key to avoiding these disputes.

In In Re Barbour, DRB 96-073, an attorney received a one-year suspension after he attempted to retain the entire settlement amount to satisfy his legal fees. In Barbour, an attorney charged a retainer fee of $1,500; however, no written fee agreement was ever drafted, and there were no discussions of his hourly rate or scope of representation. However, there was an understanding that the adversary would be responsible for the legal fees pursuant to a local ordinance. The client ultimately accepted a settlement offer of $17,500. At the time of the settlement, the outstanding legal fees were in excess of the settlement amount. The attorney claimed the client understood the settlement proceeds would be used exclusively to satisfy his legal fees. The client claimed the settlement was always understood to be $17,500 plus attorney fees. After receiving the settlement check, the attorney began withdrawing settlement funds toward his legal fees without the client's knowledge or consent.

The DRB found the attorney's conduct violated RPC 1.5 because he failed to advise a new client of the amount or basis for his fee in a written document. He also violated RPC 1.4 because he failed to keep the client sufficiently informed of the progress of the case to permit her to make an informed decision regarding the settlement. Finally, he violated RPC 8.4(c) because he misrepresented that his fees would be paid by the adversary. He was also found to have committed recordkeeping violations and unauthorized taking of fees from settlement funds without the client's knowledge or consent. The DRB suspended the attorney for one year, ordered restitution of $19,000, and conditioned reinstatement on the restitution.